A Beginner´s Guide to Buying, Selling, Using, and Mining Bitcoin Cash:
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Bitcoin started out as fool’s gold--or rather, fool’s digital gold. Other than a few believers whom society-at-large labeled “nerds” and “geeks,” Bitcoin was largely ignored. Now, after an incredible run up in price, Bitcoin is all anyone can talk about. Thousands up-on thousands of articles have been written about the popular cryptocurrency, with many more being churned out every day. Reputable newspapers like the Wall Street Journal have published several articles on Bitcoin -- some negative and some positive.
Either way, Bitcoin is no longer fool’s gold. Many believe it is the way of the future. Yet its path hasn’t always been smooth sailing. In fact, On August 1, 2017, Bitcoin went through a hard fork which resulted in Bitcoin Cash (sometimes known by its symbol BCH). So, what exactly is Bitcoin Cash, and how does it differ from regular Bitcoin?
Bitcoin Cash is a cryptocurrency built on a blockchain, defined as a database or general ledger that keeps a history of all transactions that take place on the platform. Bitcoin Cash functions within a large network built on a fork, or branch, of the original Bitcoin blockchain, guaranteeing strict accountability and pinpoint verification of the transactions that occur. The blockchain is decentralized and therefore any participants can audit the ledger.
Though Bitcoin Cash shares many similarities with other cryptocurrencies, especially its cousin Bitcoin, it is different primarily because it is the result of a hard fork. A fork is a divergence from a previous set of rules of the history of a blockchain. A hard fork is a fork that does not allow backwards compatibility. In other words, once the protocol is changed and a new trail is blazed, there is no turning back.
The Bitcoin Cash hard fork was caused by a desire to see greater scalability by some Bitcoin miners. Some wanted increased block size to benefit miner rewards and to expand usability. Others opposed this idea, arguing that it would result in depreciation of the Bitcoin value--they didn’t want Bitcoin to become another commodity.
Bitcoin Cash does share similar features to Bitcoin. It is a cryptocurrency that shares the same blockchain technology. It is decentralized, safe to use, and works within a large network of participants that ensure accountability. But it is also meant to be more practical. Bitcoin Cash creators wanted it to become much more of a currency than an investment, something Bitcoin proponents vehemently proposed.
Bitcoin Cash is an unregulated currency and therefore there is no published definition in academic research on this specific coin. However, interested parties can find definitions on websites like Reddit, which offer in-depth guides and explain the meaning of a wide variety of key terms.
Bitcoin Cash can be purchased and sold with cash or credit. All a user has to do is create a wallet -- think of a cryptocurrency “bank” account that stores coins--and register with an exchange. Though the coin is young, Bitcoin Cash is growing in popularity and has made its way onto several large exchanges, including the crypto exchange giant Kraken. Once funds have been transferred into the account connected with the exchange, users can buy and sell Bitcoin Cash as they please.
Another option is to purchase Bitcoin Cash peer to peer. In this scenario, coins are purchased directly with other buyers and sellers. Because the transfers do not happen on an exchange, transactions that take place in this manner should be watched and researched carefully.
One of the biggest benefits of cryptocurrencies like Bitcoin Cash is their flexibility. Bitcoin Cash can be converted and withdrawn as any fiat currency--USD, GBP, the Euro, etc. All one has to do is sell coins, turn them into fiat currency, and cash out. The account registered with an exchange will show a balance, which can be transferred to a bank account and withdrawn as cash from an ATM. Exchanging Bitcoin Cash is very similar to converting GBP to USD at the airport. An equivalent amount of fiat currency is issued for the Bitcoin Cash at hand.
Bitcoin Cash offers an extremely flexible alternative to fiat currencies. Users store coins in their wallets and can use the coins in a variety of settings. The hard fork stemmed in part from a desire for Bitcoin Cash to have increased use in everyday life. Consequently, Bitcoin Cash is rising in popularity as a traditional currency, i.e. it is being used to purchase tangible goods and services. Users can even use the currency to play Bitcoin Cash poker (or BCH poker).
Like most other cryptocurrencies, Bitcoin Cash can be traded and invested. As a new cryptocurrency it hasn’t seen the price appreciation that some of its peers have enjoyed, but in the long term many believe it will increase in value. The buy and hold strategy that is popular with cryptocurrency investors could prove valuable for Bitcoin Cash investors as well.
Because Bitcoin Cash is decentralized, it does not fall prey to the tinkering of central banks and currency manipulators. It is free from the constant fluctuations in exchange rates and the laws that govern them. It offers inherent value and serves to mitigate inflation risk.
In some ways, blockchain miners are like detectives. Their job is to use computing power, usually their own, to discover new blocks to add to the blockchain. Mining serves two primary functions.
First, it verifies the legitimacy and accuracy of transactions. Much like a detective finds and verifies evidence, blockchain miners are tasked with discovering and validating new blocks of transactions on the blockchain.
Second, mining creates new digital currencies by compensating miners for the tasks they perform. Miners can be rewarded with more transactions, or they can be paid with crypto coins. They can use profitability calculators to determine whether or not a particular block is worth solving.
Like other cryptocurrencies, Bitcoin Cash follows the Proof of Work (PoW) requirement. The Proof of Work process is as follows. A requirement is given to define a computer calculation--this is called mining. The first miner to solve each block’s problem is rewarded with creation of the new block. Miners compete on a network to be the first to solve the problem. Thus, with the PoW protocol, competition drives accuracy and thoroughness, all to ensure that blocks are added quickly and correctly. Therefore, like a detective, the miner’s goal is to solve problems -- blockchain problems.
Bitcoin Cash is mined just like Bitcoin is, but with a different target. In order to mine Bitcoin cash, miners must download mining software and ensure they have the necessary CPU or GPU requirements. They must then obtain a Bitcoin Cash wallet, which stores the coins.
Next, miners have the choice to mine solo or join a pool. Going solo typically results in higher profitability, since none of the profits are shared, but mining in a pool results in quicker payouts and better combined resources. As an individual or with a group, the user works to add blocks to the blockchain. Whether mining occurs independently or in a group, mining increases Bitcoin Cash’s market cap, resulting in larger payouts for miners.
No one really knows how Bitcoin Cash will scale. For many, this question will determine the fate of blockchain currencies. The question is particularly important, as a simple review of Bitcoin Cash’s price chart shows that there is hardly high demand. This is in stark to Bitcoin itself, which, despite some pullbacks, continues to be the world’s leading cryptocurrency.
As discussed earlier, scalability was the exact reason why Bitcoin hard forked and why Bitcoin Cash was created. The future is promising, as Bitcoin Cash was the first instance of the chain hard forking from Bitcoin and simultaneously being able to keep a record of pre-existing transactions. The 8 MB block size is a welcome increase over Bitcoin’s 1 MB block limit, leading many to believe the best is yet to come.
Cryptocurrencies are new and exciting. Some, like Bitcoin Cash, are even newer and more exciting. Though it remains to be seen how the hard fork from Bitcoin will fare, there is little doubt that Bitcoin Cash’s creation is already revolutionizing the way that people deal with cryptocurrencies. As scalability becomes more and more feasible, those who discovered cryptocurrencies like Bitcoin Cash in the early stages will have much to be happy about.